Massachusetts: Is it time for a change in alcohol licensing in the commonwealth?

By Kerry Feltner December 14, 2017
Massachusetts: Is it time for a change in alcohol licensing in the commonwealth?
Kerry Feltner
December 14, 2017
The Issue: The sale of liquor in Massachusetts is governed by an 84-year-old system of state regulations, sharing jurisdiction with cities and towns. Why it matters: Liquor licenses can fuel economic growth and prosperity as restaurants open, but that prosperity must be balanced with the public safety and health concerns.
It is a bittersweet cocktail.
Scarcity, pent-up demand, and the high value of liquor licenses, paired with laws that date back to 1933, and you have a bitter drink for some Massachusetts business owners.
When it comes to the state's liquor license laws, why is it so hard to change?
Alcohol Task Force
In February 2017, State Treasurer Deb Goldberg formed a seven-member task force charged with recommending "forward thinking changes" to the Alcoholic Beverages Control Commission (ABCC) regarding the alcoholic beverage industry in Massachusetts.
Since being formed, the group has studied the licensing process at the state and local level, including fee structures, and the ABCC's enforcement process. It also invited feedback from various industry stakeholders and held a series of meetings across the state.
In August, the group released a preliminary report to update its progress. Although the group hasn't made any official recommendations yet, the group listed 12 objectives it hopes to take a stance on in the final report.
The list included topics such as: impacts of the town quota system and potential for greater local control; whether non-US citizens should be allowed to hold a license; and how to best address the "pay to play" concerns over the sale of certain alcoholic beverages in restaurants, bars, and stores.
The group was expected to release a final report before the end of 2017.
For over eight decades, the liquor laws in Massachusetts have remained largely unchanged.
Massachusetts has been guided by the Liquor Control Act that was created in 1933 after Prohibition. There are 351 communities within the Commonwealth under the law's jurisdiction, with eight of those municipalities "dry," that is, prohibiting the sale of alcoholic beverages.
Today the two types of licenses available are state licenses and retail licenses. Both areas of licensing need approval by the ABCC, a regulatory entity.
The retail license approval process is as follows:
.The category of license is reviewed and the background of the individuals seeking the right to own a license is evaluated
.If the action aligns within the confines of the Liquor Control Act, an investigator will give a recommendation.
.From there, the license is evaluated by the executive director of the ABCC and to a three-member commission. The executive director--currently Ralph Sacramone--then proceeds to give a recommendation to the commission.
.Two out of three members of the commission have to vote to approve the license before it is officially granted.
.Once that is approved, the approval is sent back to the municipality, which will issue the license upon a payment fee. Once the fee is paid, the licensee can begin to operate.
For state licenses, process is similar, but without local municipal involvement.
To acquire a state license the process is as follows:
.The licensee deals directly with the ABCC.
.The licensee in this case would be a manufacturer a wholesaler--someone who serves, stores, or ships alcohol on a boat or on a plane.
.From there, the license is evaluated by the executive director of the ABCC and to a three-member commission. Sacramone then proceeds to give a recommendation to the commission.
.Two out of three members of the commission have to vote to approve the license before it is officially granted.
If there is a denial, revocation, transfer, or dispute regarding licenses, the state oversees the issue and works with the local liquor licensing board to remedy it depending on what kind of license is in question.
If an applicant is denied a license by the municipality, s/he can appeal to the ABCC. The ABCC and local licensing boards have equal power and serve as a system of checks for the other.
The ABCC has a staff of 28 people dealing with 30,000 licensees and 36,000 transactions and over 350 complaints annually.
"The Alcoholic Beverages Control Commission is an agency under the Massachusetts State Treasury," said Dan Truong, assistant communications director of the Commonwealth of Massachusetts Office of the Treasurer and Receiver General, in an email. "Our objective is to provide control over the sale, transportation, possession, purchasing, and manufacturing of alcoholic beverages in Massachusetts."
The ABCC and the city or town's local licensing board have the same power and work to create equal jurisdiction for all licensees and potential licensees. Whether it be for renewing the license, changing managers, or expansion of the establishment, the ABCC remains an active part of each licensee's business.
For special regulations, like license costs and renewal fees, local communities have authority.
Unlike states such as New Hampshire, Massachusetts is not state-controlled when it comes to alcohol; independent operators have control in the commonwealth.
Massachusetts operates under a license system allowing for independent enterprise to have some control of the retail side of alcohol through specific licenses at the state's discretion.
States like New Hampshire have state liquor stores controlling the sale of stronger spirits and wholesale alcohol; the state actively takes part in the retail distribution of the spirits under the "control" model.
Seventeen states and jurisdictions have adopted forms of the "control" model, according to the National Alcohol Beverage Control Association.
Boston has a total of 1,400 licensees and differs from other areas of the state as the number of licenses is set by legislative approval, not by population.
Current status
In the past decade, the number of licensees has grown from 24,000 to 30,000, signaling a steady growth in population and businesses throughout Massachusetts.
There are areas of the state with a quota for licenses, and 25 areas such as Cambridge, Haverhill, and Worcester that have unlimited licenses available--decisions made in the 1970s.
The quota system is based on the municipality's population from the most recent census.
According to state law, each city or town may grant one on-premises all alcoholic license for each every 1,000 people, with a minimum of 14 licenses.
One wine and malt license may be granted for every 5,000 people, with a minimum of 5.
Although the maximum licenses issued is determined by population, the minimum number is standard for cities and towns of all sizes, independent of population.
Municipalities that have reached the license cap can file a petition with the state to request additional licenses. In 2015, the state legislature granted 71 new liquor licenses to 18 communities. In 2016, Watertown was granted 15 new licenses.
Municipalities with a quota are not likely to change their status to offer unlimited licenses, as the move would devalue the licenses held in each area, according to the ABCC.
Growth has been driven by farm wineries, distilleries and breweries which are seeking pouring permits to sell their products on premise in addition to manufacturing it locally.
Annually there are over 100 businesses that apply for a home rule provision requesting more licenses, which points to the growth of the industry.
Recent adaptations
The categories of liquor licenses has not changed much since 1933; however there are new 21st-century uses for licensees. One is a need for a new type of license for continuing care retirement communities with residents over 50 years old, an addition added to the Section 12 license offering. This need has been raised in the last two years.
Other requests are from farm breweries, distilleries and wineries for pouring permits to allow consumption on premise.
Alcohol manufacturers have also requested the opportunity to become alternate proprietors, to be able to lease their space and accommodate those who may not have the funds to build a manufacturing plant.
With the new additions there are also laws that are lifted to fit today's needs.
One example is a 1933 law that stated that individuals could not own a restaurant and a package store in the same city or town. That law was recently lifted to accommodate new concepts such as grocery stores that sought to sell alcohol, such as Wegmans Food Markets or Eataly.
Next steps
While the state awaits a final report from the Alcohol Task Force, regional stakeholders have offered their opinions in the liquor law discussion.
Lawyer John Connell and four other attorneys with experience in the alcoholic beverage industry submitted a letter with recommendations to the ABCC in May.
The letter contained what Connell said were changes aimed only at streamlining the process, not upending the laws.
"Any change in a lot of these laws will help one tier to the disadvantage of another tier," Connell said.
"The people who are in charge of restructuring Chapter 138 have a Herculean effort in front of them," he added.
Steve Clark, director of Government Affairs at the Massachusetts Restaurant Association, agreed that changes need to be carefully vetted when it comes to these decades-old laws.
"We need to be careful of unintended consequences," he said.
Both agreed that the license quotas and state oversight has worked for this industry, and that change could severely impact business owners.
"If you remove the quota system you'll take hundreds of millions of dollars off the asset sheets of private restaurants," Connell said.
Clark said the license value is often leveraged when restaurant owners look to open a second location.
"When that asset value disappears, banks say you need to replace that," he said. "Similar to taxicab medallions."
He said state oversight keeps the system in check, adding another set of eyes to a system with numerous variables.
Given the complexity of the laws and the myriad stakeholders, change is likely to be met with pushback.
"We have to tread carefully with upending the system," Clark said.
"The [laws] all work together like a Rubik's Cube," Connell said.
Eight decades after the laws were first put in place in Massachusetts, it appears change is on the horizon.